What is a ‘Workplace Pension’?
This October 2012, employers are going to start to enrolling their employees into a workplace pension, so long as they meet certain criteria (listed below). So what is a workplace pension and why do you need to know about it? A workplace pension is simply a pension, funded in part by you and your employer and is a way of saving for your retirement. It has had previous names such as a ‘company pension’, an ‘occupational pension’ or a ‘works pension’. You will be enrolled into one by your employer if you are:
- Not already in a pension at work
- Aged 22 or over
- Under State Pension age
- Earn more than £7,475.00 a year
- Work in the UK
It is down to your employer to write to you about these changes and to explain how the changes affect you. When you pay into the new pension, your employer and the government will contribute too. You can always choose to opt out of this pension, if you want to, but if you stay in you’ll have your own pension, which you get when you retire. If you’re already in a pension at work and it meets the government’s new standards, this will not affect you.
There are reasons this change is happening. People are living for longer, many people have not made adequate provision for their retirement and this is one way to guarantee that employers now take a hand in their employees futures, and more people are living for longer which means that there will be a larger generation of pensioners who will need support in the next twenty or so years. When you will be enrolled depends on the size of the company. Very large employers are doing it first, in late 2012 and early 2013. Other employers will follow sometime after this, over several years. Your employer will give you the exact date nearer the time.
It is important to remember that you will still have your State Pension and that the Workplace pension does not replace it. The State Pension is a foundation for your retirement. But if you want to have more when you retire, you may want to consider contributing to a workplace pension. To give you an example of what you would be expected to live on, if you only had a state pension, the full basic current amount in 2012/13 is £107.45 per week for a single person. If you do not think that you could manage on that then you need to think seriously about the new workplace pension.
There are many benefits to having a pension at work. Your employer pays into it and this means your pension can build up more quickly than if you were saving for your retirement on your own. The government pays into it, in the form of tax relief. This means some of the money you earn, instead of going to the government as income tax, now goes into your pension instead. And your workplace pension belongs to you, even if you leave your employer in the future.
For more information about workplace pensions visit http://www.direct.gov.uk.